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Sony casts long shadow on Xbox 360 debut

Microsoft hopes to gain an advantage over rivals Sony and Nintendo by being first to launch a next-generation video game console.
/ Source: Reuters

Microsoft Corp. hopes to gain an advantage over rivals Sony Corp. and Nintendo Co. Ltd. by being first to launch a next-generation video game console when its Xbox 360 debuts Nov. 22.

While the strategy is not fail-proof, it is essential for Microsoft, which would risk being eclipsed by market leader Sony if the Japanese rival beat it to stores with its upcoming PlayStation 3 gaming system, analysts said.

The current-generation PlayStation 2 owns the $10 billion U.S. video game market and has outsold the Xbox by more than 2 to 1, with more than 30 million units purchased to date, according to market researchers NPD Group.

"Beating Sony to market in this generation is probably the most important thing (Microsoft) could have done to have a chance at taking the lead," said Matt Rosoff, analyst at Directions on Microsoft, an independent research firm. (MSNBC is a Microsoft - NBC joint venture.)

Unlike hard-core players, many mainstream gamers are likely to settle for just one of the expensive new consoles, Rosoff said. Most U.S. Xbox 360 buyers are expected to purchase a $400 package that plays current-generation games.

Peter Moore, head of worldwide marketing and publishing for the Xbox 360, said Microsoft's goal is to get the Xbox 360 into living rooms around the world this holiday season and build momentum by Christmas 2006. Sony and smaller console maker Nintendo plan to launch their systems by then.

The rivals say their technology will trump Microsoft, but Moore is sticking to his plan.

"I would rather not have second-mover advantage," he said.

If anyone knows what's at stake, it's Moore, who headed Sega Corp.'s September 1999 U.S. launch of the Dreamcast, a console that hit shelves nearly a year earlier than PlayStation 2, driving strong early U.S. sales.

But when Sony promised that PS2's "emotion engine" microprocessor would be worth the wait, gamers bought in and Dreamcast sales slowed, leading a financially strapped Sega to pull the plug on Dreamcast in early 2001.

"I saw so many parallels," between the Dreamcast and Xbox 360 launches, said editor-in-chief Sam Kennedy.

Both touted online gaming services, and Moore was instrumental in launching both.

But the Xbox 360 is backed by the world's biggest software maker, Kennedy said, and that is a crucial difference.

The original Xbox went from nowhere to second place in the United States after its November 2001 launch, and Microsoft was able to absorb more than $4 billion in operating losses in the process. In the $25 billion global video game market, the Xbox runs virtually neck-and-neck with Nintendo's GameCube but is dwarfed by PS2's 70 percent market share, according to KBC Securities.

"The fact is that Microsoft is going to get a lot of support (from video game publishers) because it's Microsoft," Wedbush Morgan Securities analyst Michael Pachter said.

To that end, Electronic Arts Inc. and Square Enix Co. Ltd. — the biggest publishers in the United States and Japan, respectively — are on board.

At launch, there will be 18 Xbox 360 games available. Analysts called the line-up strong, but underscored that it lacks a blockbuster title that will make the console a must-have.

"Right now, there is not one title that says to gamers, 'This is the reason why you need to buy the 360,"' Kennedy said.

Also working in Microsoft's favor is its Xbox Live online service, which will have a line-up of games for everyone from casual players, who tend to be female, to hard-core fans.

"That's the one thing that they have that no one else has: the best online experience," Kennedy said.

For its part, Sony is again saying its console will be worth waiting for. It promises to deliver better technology, such as the ability to play high-definition movies and games.

But Kennedy said all next-generation console makers must convince players that the new technology justifies the price.

For example, while the upcoming gaming machines have better-quality graphics, the latest evolution pales in comparison with a prior leap from two-dimensional to three-dimensional graphics.

"Is it $400 better? That's the question," Kennedy said.